Which of the following will cause the reported effective tax rate to differ from the federal statutory tax rate?

I. Foreign tax rates that are lower than federal statutory tax rate
II. Tax-exempt income
III. Different depreciation methods for tax and financial reporting purposes
IV. Foreign tax rates that are higher than federal statutory tax rate

A)I, II, and IV
B)I, II, and III
C)I and II
D)III only

Question

Which of the following will cause the reported effective tax rate to differ from the federal statutory tax rate?

I. Foreign tax rates that are lower than federal statutory tax rate
II. Tax-exempt income
III. Different depreciation methods for tax and financial reporting purposes
IV. Foreign tax rates that are higher than federal statutory tax rate

A)I, II, and IV
B)I, II, and III
C)I and II
D)III only

Quizplus · Accepted Answer

I. Foreign tax rates that are lower than federal statutory tax rate - If a company operates in a foreign country with a lower tax rate than the US, they may pay a lower effective tax rate than the federal statutory tax rate. 
II. Tax-exempt income - Tax-exempt income, such as municipal bond interest, would not be subject to federal income tax and would lower the effective tax rate. 
III. Different depreciation methods for tax and financial reporting purposes - If a company uses accelerated depreciation methods for tax purposes but straight-line depreciation for financial reporting, this could result in a difference between the effective tax rate and federal statutory tax rate. 
IV. Foreign tax rates that are higher than federal statutory tax rate - If a company operates in a foreign country with a higher tax rate than the US, they may pay a higher effective tax rate than the federal statutory tax rate.

Which of the Following Will Cause the Reported Effective Tax